S&P Downgrades Exxon Mobil

Plus analysts' opinions on Time Warner, Dow Chemical, and more

Exxon Mobil (XOM ): Downgrades to 4 STARS (buy) from 5 STARS (strong buy)

Analyst: Tina Vital

We believe that Exxon Mobil has benefitted from high oil prices through its exploration and production operations, and that commodity price and geopolitical risk is mitigated via its business diversification. Based on our updated commodity price and margin projections, we are trimming our 2004 earnings per share estimate by 4 cents to $3.62, and 2005's by 14 cents to $3.66. The shares have a dividend yield of about 2.2%. A blend of our discounted cash-flow and peer valuations leads us to maintain our 12-month target price at $57 per share. We are reducing our recommendation to buy, based on valuation.

Time Warner (TWX ): Reiterates 4 STARS (buy)

Analyst: Tuna Amobi, CPA, CFA

We are raising our discounted-cash-flow-based 12-month target price by $1 to $20, based on our view of attractive risk/reward profile and stronger balance sheet flexibility for opportunistic acquisitions. In our view, underlying businesses at TNT/TBS, HBO, Time Warner Cable and Warner Brothers remain solid. Also, we think a confluence of robust online ad market, rising broadband subscriptions and possible settlement with SEC and Department of Justice could spark a 2005 rebound at the America Online unit. But, the AOL fine could top $500 million in new legal reserves. Our 2004 and 2005 earnings per share estimates are unchanged at 67 cents and 78 cents.

Dow Chemical (DOW ): Maintains 5 STARS (strong buy)

Analyst: Richard O'Reilly, CFA

We are raising our 12-month target price to $60 from $55 to reflect higher chemical-peer p-e's and a longer industry up cycle than we had earlier anticipated. We are increasing our 2005 earnings per share estimate to $3.50 from $3.00, up from the $2.50 we see for 2004. We expect the company to achieve further price hikes in commodity products offsetting higher feedstock costs, which have risen over $2.3 billion during 2004. Our target price assumes a historical peak-of-cycle p-e multiple of 10 times and annualized earings per share approaching $6.00.

Intel (INTC ): Maintains 3 STARS (hold)

Analyst: Amrit Tewary

Ahead of the company's fourth-quarter mid-quarter update, we see fourth-quarter earnings per share of 28 cents on a 5% sequential increase in sales to $8.9 billion, gross margin of 56.0%, and operating margin of 28.8%. We expect Intel to maintain or slightly raise the midpoint of its original revenue guidance of $8.6 billion to $9.2 billion during its update. Although we do not expect the company to give specific guidance for 2005, we are looking for earnings per share of $1.25 for the year on projected sales growth of about 7%. Our 12-month target price remains $27, based on our p-e and price-to-sales analyses.

SBC Communications (SBC ): Maintains 2 STARS (sell)

Analyst: Todd Rosenbluth

With a faster-than-expected initial integration of AT&T Wireless into Cingular's operations and lower depreciation costs, we are updating our estimates for Cingular co-owner SBC. We are cutting our 2004 earnings per share estimate by 5 cents to $1.41, but raising 2005's by 18 cents to $1.12. In 2005, we see Cingular trailing peers on customer growth and EBITDA margins as marketing costs rise and service improvements are undertaken. Given the hurdles we believe Cingular faces, we view SBC shares as overvalued using our discounted-cash-flow and relative p-e analyses.

Walt Disney (DIS ): Reiterates 3 STARS (hold)

Analyst: Tuna Amobi, CPA, CFA

Disney lifted its annual dividend by 3 cents to 24 cents. A 14% hike was within expectations, as Disney shifts gear from debt paydown to dividends and stock buybacks. Still, while improving fundamentals will likely aid free cash flow generation, we believe future dividend hikes or added buybacks will be modest. We think key catalysts are media networks strength, rebound in theme parks, and merchandise licensing. With tough film comparable sales, we are trimming our fiscal 2005 (ending September) earnings per share estimate by 3 cents to $1.23. We see $1.42 in fiscal 2006. Our discounted-cash-flow and relative price/free cash flow-based target price is up $1 to $30.

Neiman Marcus (NMG.A ) Reiterates 3 STARS (hold)

Analyst: Jason Asaeda

Before one-time items, October-quarter earnings per share of $1.49, vs. $1.16, beats our estimate by 4 cents. A strong 10.6% comparable-store sales gain, coupled with November's 8.4% increase, reinforces our belief that disciplined merchandising and improved clienteling, supported by systems investments, are enabling Neiman Marcus to grow its share of wallet with affluent customers, and to sustain its profit margin expansion. We are lifting our fiscal 2005 (ending July) earnings per share estimate by 2 cents to $4.62, and fiscal 2006's by 3 cents to $5.10. We are also raising our 12-month target price by $4 to $71 on updated p-e and discounted-cash-flow analyses.

American Eagle Outfitters (AEOS ): Reiterates 3 STARS (hold)

Analyst: Marie Driscoll, CFA

November comp-store sales for American Eagle Outfitter's American Eagle brand rose 24%, vs. a 6% decline from a year-ago. Comparable-store sales for its men's business rose a high-teens percentage and women's rose a high-20s. Product acceptance led to gains in transactions per store and average ticket, fewer markdowns, and record margins. American Eagle Outfitters boosted January-quarter earnings per share guidance 8 cents to $1.08 to $1.10, vs. 57 cents earnings per share from continuing operations. We are raising our January-quarter earnings per share estimate to $1.10 from $1.04, full fiscal 2005 (ending January) earnings per share to $2.61 from $2.56, and fiscal 2006 to $2.98 from $2.90. Our 12-month target price goes to $48 from $46, on discounted-cash-flow and peer valuations.

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